5 posts from May 2013

Hong Kong: The biggest briolette-style diamond ever to appear at auction set an $11 million record when it sold to an anonymous Asian buyer in Hong Kong on Tuesday, auctioneer Christie's said.

The 75.36-carat briolette - a gem cut into a three-dimensional waterdrop shape - is suspended on a chain of diamonds. Although it fell short of a top pre-sale estimate of $12.5 million, it beat the $10.8 million record set by a 10.48-carat fancy deep blue briolette sold by Sotheby's last year.

The Type IIa diamond - similar to the Koh-i-Noor diamond set into British Queen Elizabeth's crown - is exceptionally rare, according to Christie's jewellery specialist Chiang Shiu-Fung.

"Briolette is so special because we have to find a piece of rough that is big enough to cut (into) a briolette style," Chiang said.

The diamond arrived at American diamond dealership, William Goldberg, as a 160.5-carat rough and was shaped into a 75.51 carat briolette diamond.

This was certified by the Gemological Institute of America (GIA) as the largest briolette-shaped, flawless diamond graded at the time, according to William Goldberg's database.

Earlier this month Christie's set a $26.7 million record in Geneva for a pear-shaped colourless diamond that was the largest ever offered at auction.

The 101.73 carat "Winston Legacy" diamond was the centrepiece of the Magnificent Jewels auction and was bought by jewellery and watch firm Harry Winston.

For more than 100 years, unless you were an industry insider or had connections to DeBeers, the prospect of investing in diamonds was completely out of reach. However, for the first time in history, diamond prices are no longer manipulated and are now a product of true market forces, providing investors with a long awaited opportunity.

Diamonds are not just a “girl’s best friend,” they’re also the next golden opportunity for millions of individual investors seeking safety and performance in this uncertain global economy. Investors can now buy, take physical delivery, track real-time prices, and liquidate their investment-grade diamond positions effortlessly.

And even better – prices are expected to spike soon.

So what happened over the last 100 years to make such an opportunity possible? The short answer is that natural economic forces will always prevail over any one company’s power and influence.

It all started in the second half of the 20th century when DeBeers began to lose its control over the diamond market as a result of major mines being discovered in Australia, Canada and Russia. These discoveries made it difficult for DeBeers to purchase all of the rough diamonds on the market, in turn weakening their ability to influence supply and prices in their favor.

Over time, more and more diamond producers began to bypass the DeBeers cartel by selling their supply directly to the market. By the late 1990’s the DeBeers market share had eroded to 60 percent, a far cry from the 90 percent share it enjoyed in the 1980’s.

By 2004, the DeBeers stockpile was depleted, allowing diamond prices to trade on supply and demand fundamentals, just like any other commodity. Currently DeBeers has a market share of less than 40 percent.

So why should an individual investor care about these major structural changes to the diamond industry? Well… because allocating diamonds to their investment portfolio may well be one of the best investment decisions they can make.

According to a study released by Bain and Company in 2011, it is projected that there will be an additional 276 million middle class households in China and India by 2020. This influx of consumers is anticipated to fuel record setting diamond demand for years to come.

Locally-based diamond experts are convinced that China’s new-found obsession with diamonds, combined with a burgeoning middle class, are forcing up prices globally. As Chinese consumers grow increasingly enamored with luxury goods, they are buying diamonds so quickly that it’s inflating the price of stones around the world. Since 2000, it’s estimated that 230 million Chinese have moved into cities to work for wages, creating a massive middle class that aspires to own diamonds.

As the demand grows for “affordable” stones, prices are being inflated under the rules of supply and demand. While prices for 1-carat internally flawless “top white” diamonds have risen about 7 per cent in two years, according to PolishedPrices.com – an independent diamond information website – an SI stone of similar size and colour has increased by 24 per cent.

Australian diamond expert Garry Holloway, said: “the same thing happened when Japan entered the diamond market in the 1980s.” China surpassed Japan in 2011 to become the second largest diamond-buying nation, behind the US. “Japan demanded, and got, better cut quality diamonds,” Holloway added. “This raised the price of better cut diamonds, which in turn became more readily available, but at a higher price.”

Diamond dealer Robin Sobel of Protea Diamonds agrees with Hollaway, saying the price has definitely increased recently. He says he is paying between 5-7 per cent more for some diamonds. He says mainly SI1 stones are very strong while VVS and VS1 stones are weaker due to Chinese purchasing power. "The price has gone through the roof for these SI1 diamonds because they have become so scarce. I have clients waiting to purchase good quality stones and I can't find them. It's crazy," he said.

According to Anglo American Plc (AAL), owner of De Beers Buyers, China and the US accounted for about 20 per cent of global diamond demand in 2011 and that will rise to 28 per cent in 2016 as the market grows from US$23 billion to US$31 billion.

Initially, affluent Chinese would consider only purchasing the highest quality diamonds, but as the middle class has pushed into the diamond market, that requirement has disappeared. However, it appears there is still sufficient activity in the top end of the market to ensure prices remain high.

Financial news analyst Bloomberg reported that even as shoppers go down-market in China, the gap to VVS stones was still large. The report suggested that a flawless 1-carat “top white” round diamond would cost about US$28,800 from online retailer Blue Nile, while a typical middle-market SI1-category diamond of the same size and colour would cost about US$7,200.

Africa, the world’s largest producer of diamonds, has produced half of all diamonds. With 1.9 billion carats produced, the continent has mined about $158 billion worth of the gems.

Diamond mining in Africa dates back to 1866, when the child of a Dutch farmer found a 22-carat diamond in what is now South Africa — that was the first known diamond discovered on the continent. When an 83-carat diamond was found three years later, it drew a rush of miners into South Africa.

The first four mines in Africa were dug in 1871 in areas around the Vaal River. The largest was Colesberg Kopje, nicknamed “the Big Hole,” in Kimberly. The wealth produced by these mines triggered industrial development, with modern shipping ports, along with travel and communication networks springing up throughout the subcontinent. That ultimately lead to two wars between the Dutch settlers (known as the Boers) and the British from 1880 to 1881 and 1899 to 1901. Over the next century, Africa continued to lead the world in diamond production.

The majority of Africa’s diamond empire is controlled by De Beers. The company controlled the flow and pricing of the diamond market for a large part of the 20th century after forming Anglo American Corporation in 1917 and establishing a central selling organization to stabilize sales.

Major diamond mining companies

De Beers is a holding company for various companies that explore for, trade in and produce diamonds; it is the world’s biggest diamond producer. Total sales decreased in 2012 by 16 percent, to $6.1 billion, though rough diamond sales increased 15 percent, to $5.5 billion. De Beers is predicting moderate growth in 2013 and the company expects strengthened fundamentals as diamond production plateaus and demand increases.

Anglo American (LSE: ALL) is an 85-percent shareholder in De Beers. Last year, the company saw an underlying operating profit of $496 million in diamonds alone, with a total underlying profit of $6.2 billion and $2.8 billion underlying earnings. The company predicts that robust demand for industrial commodities will boost growth for 2013.

Rio Tinto (LSE:RIO,ASX:RIO,NYSE:RIO) is another leading diamond producer that is active in mining, sales and marketing. The company reported $9.3 billion in underlying earnings for 2012. However, it recorded a net loss of $3 billion. New incoming CEO, Sam Walsh, who will officially take control of the company in July, said Rio will reduce its capital expenditure to $13 billion this year.

While Africa remains the center of global diamond production, Russia recently revealed a massive diamond mine of its own that may loosen the continent’s tight grip on the industry. Alrosa (MCX:ALNU) is a Russia-based company that explores, mines, manufactures and sells rough diamonds. The company accounts for 25 percent of global diamond production and 94 percent of Russia’s overall diamond output.

A popular way to invest in diamonds is by physically holding them. Returns for diamonds beat those of equity for much of the last 15 years, according to the Financial Times. Three-carat diamonds increased by 145 percent and 5-carat diamonds increased by 171 percent between 1999 and 2011. However, it’s worth bearing in mind that diamond trading is an unregulated market. With De Beers retaining much of the trade, it can be difficult for private investors to break into the market. With the still relatively new diamond discovery in Russia, it is hard to say if the diamond market of today will be recognizable in years to come.

RAPAPORT... Christie's Hong Kong will hold its magnificent jewels sale on May 28, offering 290 jewels for a presale estimate total of $74 million (HKD 590 million). The top lot of the sale is diamond pendant necklace (pictured) with a marquise-cut purplish pink diamond suspending a 75.36-carat, D, internally flawless, type IIa briolette diamond and a presale estimate of $8.5 million to $12.5 million.

Christie's Hong Kong will auction an emerald and diamond necklace by Boucheron, circa 1950s, that features eight emeralds set with a line of graduated old European and cushion-cut diamonds, alternating with baguette-cut diamonds. The presale estimate for this piece is $3 million to $5 million and Christie's stated that jewels of this high caliber are typically owned by extraordinarily affluent collectors.

Another top lot is a diamond and ruby ring by James W. Currens, featuring a natural 8.88-carat center oval ruby with a high degree of transparency, joined by pear and marquise-cut diamonds for a presale estimate of $2.3 million to $3.5 million.

A limited supply of high-quality jadeite is driving strong prices for these pieces in China and other locations, according to Christie's, which is why the auction house expects good buyer demand from this category. Christie's is offering a suite of jadeite and diamond jewelry consisting of a ring, earrings and a necklace set with 14 oval jadeite cabochons of brilliant green color and high translucency, enhanced by brilliant-cut diamond spacers for a presale estimate of $2.3 million to $3.5 million.

The pearl category of the sale is led by an exceptional double-strand natural pearl and diamond necklace, featuring 150 saltwater pearls set with a diamond and emerald clasp and it has a presale estimate of $1.5 million to $2.25 million.

On May 29, Christie's Hong Kong will present its spring auction of important watches, including a collection of John Stainton, and featuring 540 lots along with a presale estimate of $13.4 million (HKD 105 million).